Real Estate Agents – Disclose Dual Agency Or Risk Losing Commissions

by: Robert Pacan

It’s not uncommon for a real estate agent to act a dual agent for the buyer and seller on a real estate transaction.  In doing so, the listing agent would disclose his or her relationship with the potential buyer before an offer is presented, as per the standard listing agreement terms.  A listing agreement sets out commission rates, listing periods, as well as the terms and conditions with respect to ‘multiple representation’, also known as ‘dual agency’.

In the recent Ontario Superior Court of Justice decision of Partners Limited Realty (Royal Lepage) v. Morrow (January 9th, 2014), the issue of dual agency and commission was in question.  A real estate agent lost close to $18,000.00 in commission for not disclosing to her seller client that she also represented the buyers.

The real estate agent wanted to present an offer to the seller for the purchase of her home.  The agent would not show the seller the offer until she obtained a listing agreement for the house.  The seller agreed to sign the listing agreement and was presented with the offer.  In the listing agreement, the commission clause contained a provision which stated that commission would be paid out to the agent even if an accepted deal fell through, through no neglect of the agent.  The listing agreement also contained a dual agency clause that read as follows:

…the Listing Broker is required to inform me in writing of a Dual Agency situation with the Seller and Buyer at the earliest practical opportunity and in all cases prior to any offer to purchase or lease being submitted or presented

[emphasis added]

In this case, the seller entered into the agreement of purchase and sale, but in the end chose not to close under her own volition.  The agent’s brokerage, Royal Lepage, argued that the commission was still payable, given that the reason for not closing was the seller’s own refusal to close.

The offer was from purchasers who were also represented by the same agent.  The seller argued that the agent had not notified her in writing of the dual agency situation “prior to any offer being presented,” as required by the listing agreement. The seller testified that had she known that the agent was also representing the purchasers, she would not have entered into the listing agreement. It appears the court’s decision hinged on the drafting of the listing agreement requiring the notification of dual agency be in writing prior to an offer being presented).  As the Court outlined in its decision, the notification requirement was included in the listing agreement for the purpose of informing the signing party of the nature and terms of the relationship being entered into with the agent.

Ultimately, the Court found that the agent breached the listing agreement by not disclosing a material fact with respect to the nature of the relationship between her and the purchasers.  Therefore, while the listing agreement provided for commission to be paid to the real estate agent even when the deal did not close, the agent received no commission due to her lack of disclosure.

The takeaway as a real estate agent is to disclose dual agency relationships! Don’t wait until you present an offer to your sellers to tell them you represent the buyers. Listing agreements state that consent is needed prior to presenting offers. Be overly cautious and methodical when going over listing agreements with your clients.  In order to maximize protection as to what was discussed between agent and client when signing the listing agreement, agents should take notes as to which clauses were reviewed and/or any discussions that took place with the client with respect to said clauses.  Hold on to these notes in case questions arise in the future.

This blog contains strictly general information and is not intended to replace advice from a qualified legal professional. The contents of this blog are therefore not to be relied upon as such. Any facts or examples used are for illustrative purposes only and not intended to address specific incidents or problems. Use of this information does not constitute a lawyer-client relationship. Retain a lawyer for legal advice prior to making any decisions referenced in this blog.